Business context and reporting period
Asbury Automotive Group, Inc. is a U.S. automotive retailer operating 112 new-vehicle franchises, 25 collision centers and one auto auction across nine states. This unaudited Form 10-Q covers the three months ended March 31, 2021, compared with the same quarter of 2020. The 2021 results include $406.0 million of revenue from the Park Place dealerships acquired in August 2020.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $2,192.9 million | $1,607.3 million | +36% |
| Gross profit | $382.7 million | $272.4 million | +40% |
| Gross margin | 17.5% | 16.9% | +0.6 percentage points |
| Income from operations | $136.3 million | $35.0 million | +289% |
| Net income | $92.8 million | $19.5 million | +376% |
| Diluted EPS | $4.78 | $1.01 | +$3.77 |
| Cash provided by operating activities | $210.8 million | $127.7 million | +$83.1 million |
Revenue grew across new vehicles (+40%), used vehicles (+40%), parts and service (+18%) and finance and insurance (+25%). New-vehicle gross profit rose 107% and used-vehicle gross profit rose 82%. SG&A increased 23% to $239.8 million, but declined as a share of gross profit to 62.7% from 71.5%. The effective tax rate was 22.3%, compared with 19.1%.
Balance sheet, debt and liquidity
At March 31, 2021, cash was $27.8 million, total assets were $3.58 billion and shareholders’ equity was $998.0 million. Long-term debt, including current maturities, was $1.194 billion; total debt outstanding before unamortized premiums and issuance costs was $1.204 billion. The company reported $551.3 million of available liquidity: cash of $27.8 million, floor-plan offset funds of $145.4 million, revolving-credit availability of $239.2 million and used-vehicle floor-plan availability of $138.9 million. It reported compliance with debt covenants and said facilities’ covenants did not further limit availability.
Reported operating cash flow was $210.8 million, but the company’s non-GAAP adjusted operating cash flow—adjusting for non-trade new-vehicle floor-plan repayments and borrowings—was $54.4 million, versus $164.9 million in Q1 2020. Investing activities used $3.7 million; financing activities used $180.7 million. Cash increased $26.4 million to $27.8 million.
Material changes versus the prior comparable period
- Higher vehicle volumes and selling prices, along with stronger new- and used-vehicle gross profit per unit, drove much of the increase. Same-store new-vehicle gross profit per unit rose 39%; same-store used-vehicle gross profit per unit rose 25%.
- New-vehicle inventory constraints contributed to stronger vehicle margins and used-vehicle demand. New-vehicle supply was about 34 days, roughly half the company’s target; used-vehicle supply was 27 days versus a 35-day target.
- Parts and service improved from pandemic-related weakness, although same-store revenue increased only 1% and same-store gross profit only 1%.
- Prior-year results included a $23.0 million franchise-rights impairment, a $20.6 million debt-extinguishment loss and a $33.7 million gain on dealership divestitures. These items make the year-over-year earnings comparison less indicative of recurring performance.
- Q1 2021 other operating income was $3.2 million, primarily reflecting a $3.5 million gain from legal settlements.
Outlook, commentary and risks
Management provided no specific revenue or earnings guidance in the filing. It expected 2021 capital expenditures of approximately $55 million and an effective tax rate around 25%. Management said available liquidity should be sufficient for at least the next 12 months to meet operating, working-capital, debt-service and other requirements.
The company highlighted COVID-19 uncertainty and shortages of semiconductors and other components, which were reducing new-vehicle and parts availability and could affect service and collision operations. It said it could not predict when supply would normalize. Other cited risks include changing consumer demand and economic conditions, interest rates, manufacturer relationships and incentives, and legal or regulatory matters. A 100-basis-point change in interest rates could change annual interest expense by up to $5.0 million, based on $496.4 million of variable-rate debt. The Ford Credit floor-plan facility was due to mature July 31, 2021. Management did not expect known claims to materially affect results, but noted that outcomes are uncertain. The company also disclosed $10.8 million of letters of credit and a $9.7 million surety-bond line.
Important facts for investors to verify
- Whether semiconductor and other supply constraints persist, and how they affect vehicle availability, pricing, margins and parts-and-service activity.
- How much of the earnings increase reflects sustainable same-store performance versus the Park Place acquisition and unusual prior-year comparison items.
- The difference between reported operating cash flow and adjusted operating cash flow, including working-capital and floor-plan financing effects.
- Liquidity, facility availability and refinancing or renewal arrangements, including the Ford Credit floor-plan maturity and interest-rate exposure.
- Whether the projected $55 million of 2021 capital expenditures and management’s liquidity and tax-rate expectations remain current.